About Piponomics

Economics plays a huge role in the foreign exchange market. I enjoy looking at economic trends and trying to see how it may affect currencies, and life in general. I will post my thoughts and observations here. I'm throwing macroeconomics, forex trading, pop culture, and everyday life into a pot and hopefully the final product are lessons about the FX market that's easy to understand.

Spotlight on the New Zealand Dollar

I read an article the other day about how Lebron James is quietly having one of the best seasons in NBA history. He has averaged 27.9 points, 8.2 rebounds, and 6.8 assists over the first 31 games of the season, and yet, this has somehow escaped many people’s attention.

It seems Lebron’s recent achievements have been overshadowed by Jeremy Lin’s inspirational success story. It truly is Linsanity!

Anyway, I couldn’t help but wonder if the same thing could be happening in the forex scene. With most eyes focused on the euro and the U.S. dollar, could we overlooking a strong performer? After a few seconds of thinking, it occurred to me that maybe we should shine the spotlight on the New Zealand dollar. It is, after all, the strongest currency year-to-date.

Strongest in 2012

The New Zealand dollar, also known as the Kiwi, isn’t a currency that often makes it to the headlines, though I would say that its recent performance is certainly noteworthy.

One reason why it has somehow managed to stay under the radar is that New Zealand reports usually don’t get as much publicity as those from the west. The size of its economy pales in comparison to the U.S. and Europe, so economic events and occurrences in New Zealand tend to have less of an impact in the global scene.

Yet even if it doesn’t draw as much attention as the euro or the U.S. dollar, the Kiwi has managed to make it to the top of the forex food chain. So far, it has been the strongest currency of 2012 and has gained about 7% against the U.S. dollar since the start of the year.

One look at NZD/USD’s daily chart will show you that this rally isn’t a fluke, and it didn’t happen overnight. The Kiwi has been going nowhere but up since we kicked off 2012, and it has been doing so at a steady pace.

Fundamentally backed strength

New Zealand’s strong fundamentals have played a big role in fueling demand for its currency. Last quarter, its unemployment rate fell from an already low rate of 6.6% to just 6.3%. And retail sales also recorded a 2.9% growth in Q4 2011, a nice follow-up to the 2.6% surge we saw in Q3.

By any standard, these are impressive figures. But in spite of all this, Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard still thinks New Zealand is underrated, and that it may be doing better than even the RBNZ had previously thought. In a recent speech, he said that the computational methods that New Zealand uses in calculating its GDP may actually result in an understatement of up to 10%!

But what really sets New Zealand apart is that the Reserve Bank of New Zealand (RBNZ) is the only major central bank expected to raise interest rates within the year. The latest Bloomberg survey had median forecasts estimating up to 2 rate hikes in Q4 2012, which is quite notable considering that many central banks are actually expected to ease their monetary policies. Such a unique case is certainly worthy of some attention, isn’t it?

Now, in no way am I saying that you should go out there and buy as many New Zealand dollars as you can. All I’m saying is that you should avoid getting tunnel vision. In focusing on more popular currencies such as the euro and the U.S. dollar, you may be missing out on more lucrative trades.

Consider this as a friendly reminder to not lose sight of the currencies that aren’t often featured in headlines. They can sometimes give you more bang for your buck!

according to my personal analysis, kiwi has more room to play in up side direction, and i personally marked a point in my chart 0.8841 or +/- a few pips – the day high of 01 aug 2011, and if near term counter trend takes place then it may love to touch 0.8015 or +/- a few pips